Hong Kong to unveil budget amid deep recession
By Andrea Ricci
HONG KONG, March 2 (Reuters) - Once-booming Hong Kong unveils its budget against a background of deep recession on Wednesday but most analysts expect no major new initiatives.
''We do not expect any radical changes to be announced in the Hong Kong budget presentation on March 3,'' Morgan Stanley economist Andy Xie said in a commentary.
''The financial secretary is caught between the desire to further relieve the private sector burden through tax cuts and the need to preserve fiscal revenue. The budget is likely to opt for the status quo, in our view,'' he said.
Financial Secretary Donald Tsang, who will unveil the document, is calling the report for the 1999/2000 fiscal year beginning April 1 ''Onward with New Strengths.''
In the 1998/99 budget, Tsang offered a grab bag of tax and spending giveaways to soothe a populace worried about the territory's economic downturn. But economists said the government has neither the means nor the will to proffer gifts now.
The economy contracted 7.1 percent year-on-year in the third quarter of 1998 and the government has said it expects gross domestic product to fall around five percent for full-year 1998.
Tsang will present the government's official 1998 growth and inflation estimates on Wednesday and its forecasts for calendar 1999 and beyond. Most economists expect growth to be flat or moderately negative in 1999.
On Saturday, the government said the budget deficit for the 10 months to January 31 was HK$27.48 billion and most economists expect the gap to be HK$30-40 billion for the full 1998/99 fiscal year ended March 31.
Hong Kong derives about a third of its revenues from land sales and levies related to property and the government decision to suspend land sales last June to stabilise the market cost it dearly.
Land sales will resume on April 1, but, at HK$30.8 billion, revenue projections are down sharply compared with last year's medium-term outlook.
Economists and some politicians have urged the government to consider widening the tax base to lessen its reliance on the property sector through, for example, more progressive tax rates or consumption taxes.
Other revenue-raising ideas that have been suggested include the privatisation of government entities such as the Mass Transit Railway Corp and the Kowloon Canton Railway Corp, or the issuing of government debt.
But few expect the financial secretary to announce major reforms with the economy still weak. He is more likely to introduce modest earnings-enhancing measures, such as a betting duty or a minor levy on cross-border travel to mainland China.
On Friday, Treasury Secretary Denise Yue said government spending would be boosted 2.4 percent in fiscal 1999/2000. Analysts said the rise was generous given the current economic circumstances, but below last year's medium-term projections.
The rabbit-in-the-hat could be an announcement regarding a partnership with The Walt Disney Co (NYSE:DIS - news), which is believed to be in talks with Hong Kong to build its fifth Disneyland theme park.
Shares of property giants Swire Pacific and Cheung Kong , seen as likely partners to Disney in a Hong Kong venture, rose on Tuesday on speculation of an announcement.
A Disney deal would be a crowd-pleaser in a budget that won't offer much good news. A recent telephone survey taken by a local political party found 90 percent of respondents would welcome a little stardust.
But the government remains coy about its affair with Disney. ''We are courting each other,'' a Hong Kong spokeswoman said on Tuesday. Disney also has refused to tell.
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